The Costs of Delaying the Individual Mandate

Despite lower-than-expected premiums for plans in insurance exchanges, major technological issues with the HealthCare.gov website are frustrating consumers who are trying to compare and enroll in a health plan. As a result, some members of Congress have called for a one-year delay of the individual mandate to purchase health coverage under the Affordable Care Act, or ACA. Thousands of Americans, however, have already successfully enrolled in plans through state-based exchanges, making such a delay unnecessary and harmful. Although the administration must continue to urgently repair the federally facilitated exchange website, a one-year delay of the mandate would undermine the success of state-based exchanges and harm millions of Americans, resulting in significantly more uninsured individuals and more costly premiums for consumers in plans both in and out of exchanges.

Effectiveness of state-based exchanges

While issues with the website for federally facilitated marketplaces have made it difficult for consumers to enroll for coverage, states that are running their own exchanges are successfully enrolling thousands of consumers in affordable health plans. Recent estimates from the 15 state-based exchanges indicate that more than 365,000 people applied for coverage in the first month of enrollment. States such as Kentucky, New York, and Washington have already enrolled thousands of consumers in private health plans, with thousands more signing up for other coverage, including Medicaid. Given this success, a delay of the mandate is overbroad and unnecessary.

Calls for delay

Despite sound—and originally conservative—principles underpinning the need for an individual mandate to make health care accessible and affordable for all, in July, House Republicans passed legislation to delay the mandate for a year—long before any technical glitches troubled the enrollment website.

More recently, Sen. Joe Manchin (D-WV), who publicly opposed the mandate prior to any issues with enrollment website, announced plans to introduce similar legislation. Similar to the House legislation, Sen. Manchin’s bill would delay enforcement of the mandate penalty for one year, until January 1, 2015.

The importance of the mandate

Today, nearly 50 million Americans lack health insurance. Although the ACA has already lowered the number of uninsured, ensuring that millions more can access quality, affordable health care hinges on the participation of all eligible persons—both the healthy and sick—in insurance risk pools. Absent a requirement such as the individual mandate, younger, healthier people may forgo health insurance coverage or only enroll when they are sick.

With new ACA requirements to provide coverage to anyone who enrolls—regardless of health status—insurers need these younger, healthier, and less-costly enrollees to broaden risk pools and keep premium rates affordable. The individual mandate protects insurers against the adverse selection process in which less-healthy individuals with much higher health care costs make up the majority of the insurance risk pool, driving up insurance costs.

Accordingly, the Affordable Care Act requires everyone—with few exceptions—to obtain insurance coverage beginning January 1, 2014. Under current law, those who do not comply with the mandate will be charged the greater of a flat-dollar amount—$95 per uninsured adult in 2014, rising to $695 in 2016—or a percentage of family income. The Department of Health and Human Services recently clarified that all those who sign up for an exchange plan by March 31, 2014, will not be charged this shared responsibility fee.

Consequences of delay

A one-year delay of the mandate would have significant consequences for millions of Americans, leaving millions more uninsured and substantially raising premium prices for those with insurance.

Higher numbers of uninsured

The nonpartisan Congressional Budget Office, or CBO, estimates that a one-year delay of the mandate would decrease the number of Americans expected to gain insurance coverage in 2014 under the Affordable Care Act by approximately 85 percent. CBO’s earlier projection that 13 million Americans would gain coverage in 2014 with the mandate in place would be reduced to just 2 million persons, leaving 11 million fewer people without coverage. In total, 55 million Americans would be uninsured in 2014.

Higher premiums for the insured

Average premium rates for exchange-plan coverage in 2014 are substantially lower than projected—on average more than $700 less than earlier estimates. Insurers set these rates based on current law, which included assumptions that the individual mandate would increase enrollment and spread risk. Delaying the mandate would force insurers to offset the impact of the delay in 2014 by sharply increasing premium prices for 2015. Higher prices would not only affect plans sold to individuals through exchanges, but they would also affect the cost of individual plans purchased outside of an exchange. More expensive rates would cause some healthier people to forgo insurance potentially leading to additional increases in health plan prices and low enrollment in plans. This cycle of adverse selection would not just impact prices in 2015; it could also make it difficult for plans to establish stable insurance risk pools in future years.

The Congressional Budget Office assessed that a one-year delay in the mandate would lead to higher premiums in the nongroup market. Although CBO did not specify the size of the expected premium increase, CBO’s earlier estimates of a permanent mandate repeal showed that average premium prices would increase between 15 percent and 20 percent. Other estimates of permanently repealing the mandate confirm a projected price hike. The Urban Institute estimated that average premiums would increase by about 10 percent with high-exchange participation and 25 percent with low participation, and health economist Jonathan Gruber estimated that premiums could be as much as 27 percent higher.

Conclusion

While the Obama administration works to ensure that people can enroll in affordable health insurance plans through the HealthCare.gov website, people across the country are already successfully enrolling through state exchanges, such as those established in Kentucky, New York, and Connecticut. Any delay in the mandate would harm millions of Americans and prevent people from realizing other benefits of the mandate, which include lower costs of uncompensated care and more affordable premiums. Instead of calling for a delay of the individual mandate, lawmakers should instead focus their efforts on public outreach and education to ensure that the market reforms heralded by the Affordable Care Act work to benefit us all.

Emily Oshima Lee is a Policy Analyst with the Health Policy team at the Center for American Progress.